[NOTE: A version of this newsletter update was originally published on May 10, 2022.]
The launch date for the Uyghur Forced Labor Prevention Act (UFLPA) enforcement is six weeks from today, and it’s time to get tactical.
If you’re prepping as you should be, collecting insights from experts on the topic, one of the most common refrains you’ll hear is that there’s a lot we don’t know about how the UFLPA will be enforced. On this, I respectfully dissent.
While it’s true that much remains to be seen in terms of how the enforcement process will unfold, we absolutely know how to mitigate the risk of adverse outcomes from UFLPA enforcement. To help try and make this as clear for you as it is for me, I’m dedicating this edition of my newsletter to laying out The UFLPA Playbook.
I have described here a few specific things that are going to happen as we move into active enforcement:
First, the forthcoming publishing of the “strategy” for UFLPA enforcement, and so-called “importer guidance” that will be issued by CBP;
Second, a specific type of detention that will be characteristic of the first enforcement actions under the UFLPA; and
Last, the entity-listing process, which will cause the UFLPA’s dominant impact over time, and ultimately become its defining legacy.
I’m telling you what I think will be significant about each of these developments—what you should be paying attention to, what you can ignore—and I’ve provided the most practical guidance possible for how you should respond to each. In other words, for each of these developments, I’m giving you The UFLPA Playbook.
Before we dive in, if you need a refresher on how the UFLPA will operate, pop over and reread our client advisory, available here.
1. “Guidance” From the Government
The most important remaining developments in the final six weeks to UFLPA enforcement will be the publication of at least two official documents by the U.S. government: (1) the “strategy” for UFLPA enforcement, to be published by the Forced Labor Enforcement Task Force, and (2) “importer guidance” that CBP has said it will be issuing.
You may recall that the UFLPA assigned a great deal of responsibility to the Forced Labor Enforcement Task Force, including the development of a “strategy” for UFLPA enforcement. There were a few odd features about this strategy. For starters, the strategy is set to include not only strategic guidance, but also actual lists of Chinese entities that will operate as a de facto import sanctions regime. (See my Newsletter update of January 21 2022, in the thread below.) That will make the Task Force document less a publication “supporting enforcement of Section 307 of the Tariff Act of 1930”, which is how the UFLPA describes it, than a legally binding document in its own right.
Also odd is that this strategy is due to be published on June 21, 2022—the same date that enforcement will begin. How much can a strategy for enforcement inform enforcement, if enforcement is to commence concurrent with the strategy’s publication?
While you’re pondering that brain teaser, consider also that CBP has promised to publish “importer guidance” in advance of the launch date for enforcement. If it is in fact published before the Task Force publication, this will, by definition, be guidance without a strategy.
And while you start wondering about the blind leading the blind, let me also point out that notwithstanding CBP’s promise to publish importer guidance, the Task Force strategy is also required, by statute, to include “guidance to importers” (Pub. L. 117-78 Sec. 2(d)(6)). So, perhaps we should be expecting “importer guidance” from CBP, and “guidance to importers” from the Task Force.
Bottom line, we are expecting at least two documents to be published during the run up to enforcement. The right play, according to The UFLPA Playbook, is don’t sweat the details of these publications, and let us keep you apprised.
If history is any guide, the content in these publications is likely to be all over the map in terms of relevance and usefulness. The types of forced labor importer guidance that CBP has published in the past—including such recommendations as, request a binding customs ruling, follow the OECD guidelines for responsible enterprises, review lists published by the Department of Labor, and collect time cards from cotton farmers—has often fallen somewhere within the Bermuda triangle of Confusing, Obvious and Unhelpful, with the occasional tidbits landing on the islands of Useful or Important.
We’ll read what is published. If there is anything in the strategy or guidance that you need to know, we’ll let you know. Otherwise, your energy is best spent preparing to follow other plays in The UFLPA Playbook.
2. The First UFLPA Detentions
A couple weeks ago, CBP announced that it was issuing “Known Importer Letters” to importers that CBP has identified “as having previously imported merchandise that may be subject to the [UFLPA] to encourage those importers to address any forced labor issues in their supply chains in a timely manner.”
CBP announced this in a press release, which was promptly echoed around town via the trade press, law firm client alerts, association updates, etc. If you’re following this topic with any regularity, chances are you’ve heard something about this development. But it is worth thinking for a moment about what it means.
Remember that the UFLPA applies only to two categories of goods: those produced wholly or in part in Xinjiang, or those produced wholly or in part by an entity that comes to be listed under the law. Given that the listing process hasn’t happened yet, CBP must be sending Known Importer Letters to importers that it suspects have previously imported goods produced wholly or in part in Xinjiang.
But this raises an interesting and difficult quandary. We know from publicly available trade data that the number of direct shipments from Xinjiang to the United States has decreased dramatically. With few exceptions, companies just aren’t importing goods directly from Xinjiang into the United States. So, any company that receives a Known Importer Letter and does not import directly from Xinjiang has nevertheless fallen in CBP’s cone of suspicion based on . . . something. What exactly, it is impossible to say, because CBP refuses to disclose the basis upon which it makes such judgments.
We do know there is no data contained within a standard import declaration that would allow CBP to have visibility deep into an importer’s supply chain sufficient to know that a particular shipment is geographically linked to Xinjiang, because of some sub-sub-sub-supplier. Thus, when CBP notifies an importer that it thinks the importer has goods that would be subject to UFLPA enforcement, it is either drawing a conclusion about that importer’s supply chain based on some other source of data, or it is guessing.
When the clock ticks over to June 21, and Known Importer Letters begin morphing into actual detentions based on non-disclosed data or guesswork, it will be time to consult The UFLPA Playbook. The Playbook calls for two approaches: one proactive, and the other reactive (only for use in case of emergencies).
Play 1: Every importer must be mapping its supply chain in China. The best defense you will have against a detention driven by a supply chain linkage to Xinjiang is to ensure you have no supply chain linkage to Xinjiang. The number of industries for which Xinjiang-based suppliers are truly essential and irreplaceable is very small. For everyone else, any Xinjiang linkages can—and should—be replaced.
You can do this work on your own, or there are software platforms that can help. There are platforms that can help you discover and record the identity of suppliers throughout your supply chain. There are software companies that will offer sell you a theoretical model of what your supply chain in China might look like. Even without investing in a software solution, a reasonably organized compliance person can accomplish more than you might expect. If you want guidance, let’s talk.
The reason why mapping your supply chain in China is so critical is that if and when you face a detention, there are two types of battles you can be dragged into. You can either challenge the detention by trying to argue that CBP stopped the wrong goods, or you can get pulled into an exponentially murkier debate over whether your goods were or were not made with forced labor. The first battle is preferable to the second in every instance.
To state it differently, you should always prefer to argue about the provenance of your goods—where they were produced—than to have to put forth evidence regarding the condition of labor used to produce it. But sometimes, even your best efforts to map your supply chain in China will not be successful to defeat a detention. You might be darn near positive that a particular shipment has no linkage to Xinjiang, but find that it has nevertheless been detained, and CBP won’t say why. In that case, it’s time to consider Play 2.
Play 2: Be prepared to challenge CBP’s detentions as unlawful. Look. I stipulate that this is a confusing area of the law. And I don’t think your understanding will be enhanced if I quote chapter and verse of the customs minutiae behind this. I tried to lay this out in painstaking (but accessible) detail in an article I wrote for Lawfare early last year. So here, let me just say more succinctly that a key legal problem afflicting Section 307 enforcement is poised to afflict UFLPA enforcement just the same.
The problem is that Section 307 does not permit CBP to detain a shipment in order to figure out whether the imported goods contain a product (like Xinjiang cotton) identified in a WRO. Rather, Section 307 authorizes CBP to detain shipments that do contain a product identified in a WRO (like Xinjiang cotton), and then require the importer to present proof that such goods were not made, wholly or in part, with forced labor. But in practice, it seems clear that CBP has routinely been using the detention mechanism as a fishing expedition, as a means of trying to locate Xinjiang cotton on its way into the country. While this is understandable—CBP does not know where Xinjiang cotton is entering the country—it is an approach that is inconsistent with both Section 307 and the CBP forced labor regulations, and is therefore vulnerable to legal challenge.
The same problem is present in the UFLPA. There is nothing in the text of the UFLPA that will permit CBP to detain shipments in order to determine if those goods are linked to Xinjiang or a listed entity. Rather, the UFLPA only authorizes CBP to detain shipments that are definitely linked to Xinjiang or a listed entity, at which point the shifted burden of proof regarding conditions of labor will kick in.
Thus, if CBP cites the UFLPA, or a WRO, or Section 307 as the basis for detaining goods without pre-existing knowledge that the goods are, in fact, subject to detention, that is an unlawful detention. For purposes of U.S. customs law, CBP’s refusal to permit such goods to be released into the United States would be considered an “exclusion” or a “deemed exclusion”, which is an action that is subject to administrative protest, and ultimately judicial review at the U.S. Court of International Trade.
I’ll be the first to acknowledge that suing CBP over unlawful enforcement of the UFLPA or forced labor import ban requires some fortitude, and a dusting of chutzpah. But that’s why I’m trying to call this to your attention. This is worth forwarding to your GC’s office with a highlight and a “see below”.
Challenging CBP’s detention as unlawful is also not the right play in every instance. For example, companies that have failed to take seriously the challenge of mapping their Chinese supply chains might want to think twice before taking this approach. Nevertheless, this response has to be considered part of the Playbook. Over the last several years of CBP’s enforcement of Section 307, the practice of using the detention mechanism as a fishing expedition has occurred and recurred with regularity. If CBP is not held to account, the practice is bound to continue with the UFLPA.
3. The Entity Listing Process: The UFLPA’s Dominant Impact, and Long-Term Legacy
I’ve said it before in this Newsletter, I’ve been quoted as saying it, and I’ve been asked publicly to defend the assertion. I’ve been happy to do so, and will continue to. There are certainly hundreds, and probably thousands of Chinese entities that fit the conditions of the law to become “listed” under the UFLPA.
Over time, inadvertent supply chain linkages to Xinjiang will have a way of working themselves out. CBP will spot some such linkages, and whether incentivized by a detention, or as a result of its own supplier discovery process, companies will find a way to identify and remove suppliers located in Xinjiang. But over the long run, the listing of entities under the UFLPA promises to be far more impactful.
How many entities the Task Force will ultimately list, we will have to wait and see. But the topical coverage of the lists is sprawling. Any Chinese company with just about any link to one of the social programs of concern targeting Uyghurs and other ethnic minorities in and outside of Xinjiang is subject to listing. NGO researchers, who showed the ambition and ability to identify and document such linkages to dramatic effect long before the passage of the UFLPA, now have a statutory right to coordinate and cooperate with the U.S. government when it comes to listing. It may take some months, but these lists are going to grow.
A listing under the UFLPA will have immediate effect. There is no wind-down period or safe haven to complete an import transaction connected to a listed entity. Under the UFLPA, any goods produced wholly or in part by a listed entity will be considered immediately inadmissible into the United States.
Suppose the Task Force lists a major materials provider—a company with few direct shipments to the United States, but a critical supplier to finished goods manufacturers in Vietnam, Indonesia or Malaysia. Overnight, every U.S. importer doing business with those dozens of downstream Vietnamese, Indonesian or Malaysian manufacturers will have immediate legal exposure for any shipments containing goods produced by the listed entity. That internal disruption would be challenging enough to mitigate, but it may dwarf in comparison to the attendant commercial disruption of an entire industry losing a sequence of critical materials suppliers.
Here again, The UFLPA Playbook is remarkably clear. The right play is to undertake organic due diligence of the Chinese entities in your supply chain for geographic or social program linkages that could result in a listing.
Companies that can proactively identify problematic linkages before public allegations are made can solve the problem before it starts, by mitigating or nullifying adverse legal and reputational outcomes, and evading supply chain disruptions. Kelley Drye can help. Please contact me for more information.